The BoI expresses approval of the 2025 fiscal framework

ISRAEL - In Brief 25 Nov 2024 by Jonathan Katz

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There were no surprises in the rate decision (hold) or monetary announcement. “Monetary Committee’s policy is focused on stabilizing the markets and reducing uncertainty”, the same sentence for over one year. Inflation (3.5%) remains above target and is expected to accelerate y/y in early 2025 (due to higher taxation and government measures). Growth in Q4 appears weaker (“mixed indicators”) than the third quarter. The labor market remains tight with some recent moderation, and wage growth has also moderated. We do emphasize that the BoI came out with support of fiscal policy for 2025, “which is in accordance with BoI recommendations”, which we view as significant. “The government’s approval of the budget is a significant step, but it is important to maintain the framework that was approved by the government through the remaining legislative process.” The fact that the BoI views the fiscal framework in 2025 as tight and satisfactory, will be an indirect factor supporting monetary loosening. We had expected the first rate cut in July 25 and a total of two rate cuts in 2025. We do note that the recent sharp appreciation of the shekel is significant on the back of a cease-fire expectations in the North. Today the shekel appreciated by 1% against the basket and continued to appreciate following the fixing of the official exchange rate. The shekel has appreciated by nearly 6% in the past two months. This trend will support lower inflation and inflation expectations and could push the first rate cut forward.